The Federal Reserve’s preferred inflation gauge, the personal consumption expenditures price index, rose to a new three-year high in May. Consumer prices increased 4.1% in May from a year earlier, the largest annual increase since April 2023. The rise was largely driven by more expensive gas, as well as pricier semiconductors and other computer equipment in high demand for the AI buildout.

Inflation Impact

Rising prices have caused the inflation-fighters at the Federal Reserve to keep their key rate unchanged this year, a reversal from January when they had planned two cuts. Some economists forecast the central bank could lift rates this year instead. The increase in inflation has been above the Fed’s 2% target for more than five years, leaving many Americans more gloomy about the future.

Oil and gas prices have fallen substantially since President Donald Trump agreed to a peace deal with Iran earlier this month, but the conflict lifted gas prices to nearly $4.50 a gallon on average nationwide in May. They have since fallen back to $3.92 as of Thursday, according to AAA, but that’s more than 20% above prices at this time last year as the driving season gets underway.

Higher gas prices aren’t the only thing worsening inflation. The AI buildout has made computer components more expensive, and Apple announced last week that it would raise prices for its computers and iPads because of the higher costs. Services prices also rose sharply last month, lifted by more expensive restaurant meals, hotel rooms, auto repairs, and health care.

Original reporting: Texarkana Gazette — read the source article.